Wealth Building Assets 101: What is Wealth Building & How to Get Started

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According to a study by Credit Loan, three in four Americans feel they are living paycheck to paycheck. While their sentiment may be attributed to several factors, many individuals are lacking the income to support their regular lives. The solution to this problem can be found through a combination of financial education and wealth building assets. Individuals who opt for the right planning and investments can supplement their primary income and work towards financial success.

The reason wealth assets are instrumental in achieving financial freedom is that they offer a chance to generate income from multiple, high-yielding sources. Read our guide to wealth building to learn about the right options for you.

What Is “Wealth-Building?”

Wealth building is the process of generating long-term income through multiple sources. This refers to more than job-based income and instead includes savings, investments, and any income-generating assets. The wealth building definition relies on proper financial planning and insight into one’s future financial goals. Many individuals will turn to wealth building as a way to secure a strong financial future.

The 3 Steps To Wealth-Building

To build wealth over time, you must to follow three simple steps: make money, save money, and invest money, Before investing, it is essential to have a reliable source of income that spans throughout your long-term financial future. After a reliable source of income is assured, it is recommended to set a concrete savings plan. Finally, it is time to invest.

Making Money

This step may seem obvious, but it is essential to state that a constant source of reliable income over time is fundamental to wealth-building. A small amount of regular savings that comes from this source of income can compound into a substantial amount. An important question to ask yourself is whether or not your current job can provide you with a regular amount of savings for 40 to 50 years. If not, it may be time to look for ways to increase your income.

The two basic types of income are earned and passive. Earned income comes from your regular occupation while passive income comes from investments. To increase your earned income, you may first have to make changes in your occupation. Once you find the proper financial stability, you can start saving and investing.

Saving Money

Many people live comfortably after finding financial stability, but do not save their money well. The second key to wealth-building is setting aside a portion of your earned income regularly. Once you have saved enough, you can start investing to grow passive income. Here are a few ways to to start saving money:

  • Keep track of your spending each month.

  • Reduce your non-essential spending.

  • Always have about 6 months worth of expenses saved in case of emergencies.

  • Contribute to your retirement plan

Investing Money

Finally, once you have a stable foundation, you can start investing your money appropriately. However, to build a diverse investment portfolio, you will have to take a few risks. It is important to research how much asset allocation is appropriate for you. While you can do this research yourself, using a financial advisor is also recommended for new investors.

Once you have assured yourself of how much you want to spend, you can decide which wealth-building assets are right for you.


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wealth building assets

What Are The Best Wealth-Building Assets?

Traditionally, the best wealth building assets are thought to be real estate, private notes secured by real estate, and stocks. This is because each of these assets has the potential to generate continuous cash flow. While other wealth building assets can provide returns for savvy investors, these are thought to be the most high-performing.

Other wealth building assets include bonds, CDs, mutual funds, annuities, and more. While certain wealth building assets are considered more high yielding than others, each opportunity will come with some tradeoffs. Keep reading to learn more about the best wealth building assets as well as each strategy’s pros and cons.

Real Estate Investing

Real estate is perhaps one of the most well-known wealth creating assets. Historically, real estate has proven to be a high-yielding investment for those who know what they are doing. According to a 2017 study, the average rate of return for real estate over a roughly 150 year period was around eight percent. The next closest performing asset was stocks, with an average rate of return around seven percent. Other wealth building assets, like bonds and CDs, averaged below three percent.

Real estate’s high performance is the result of several factors, ranging from the potential for monthly cash flow through rental income to the significant number of tax breaks available to investors. For those interested in getting started, generating wealth through real estate will require choosing the right exit strategy and property type.

Start by researching your desired market and determine which areas have the most opportunity. Some options include residential real estate, commercial properties, and vacant land. While residential real estate involves strategies like renting out vacation homes or house hacking, commercial real estate can offer attractive because including long-term leases and its capital potential.

Building wealth through real estate investing is an attractive opportunity for anyone looking for long-term financial security. Because real estate can generate consistent cash flow, many entrepreneurs will find they can reinvest a portion of their profits and expand their portfolios. There are several ways to reinvest the money earned from real estate investing, which includes purchasing additional properties or even investing in alternate wealth-building assets. If you are interested in learning more about reinvesting returns, be sure to read this article.

Private Notes Secured By Real Estate

Real estate notes refer to promissory notes that guarantee to repay a mortgage or loan. They are an alternative to investing directly in real estate, and instead award investors the chance to act as a lender. Private notes are an attractive vehicle for building wealth through real estate because they allow investors to take on a more passive role. This strategy does require a bit of background knowledge to be successful in, therefore investors should be sure to do their research before getting started.

There are a few basic types of private notes to be aware of, including loans for investors who rehab properties, seller-financed notes, and loans for homeowners. Loans for fix-and-flip properties typically pay high interest rates and are short term, ranging from six to 12 months on average. Notes for seller-financed properties can be profitable if lenders know what to expect. Be sure to familiarize yourself with seller financing before looking into this opportunity. Finally, investors can act as a lender for regular homeowners. This setup is relatively straightforward and involves acting as a lender for aspiring homeowners.

When working with private notes, investors must have a screening system for borrowers. Be sure to look at the loan-to-value (LTV) ratio and a borrower’s debt-to-income ratio. Private notes can be a strong investment when managed correctly; however, it is a good idea for investors to fully understand the system before getting involved. If you are interested in learning more about private money lending, check out this article.

Stocks Of Publicly Traded Companies

Publicly traded stocks are another well-known example of wealth assets. Stocks award investors the opportunity to buy shares in companies and earn profits. Stocks have proven to be a strong wealth building asset over time. As previously mentioned, according to a 2017 study, stocks were found to be a highly-successful investment with the rate of return averaging around seven percent. Many investors find stocks to be a successful investment over time, though they can be unpredictable in the short term.

When compared to other wealth-building assets, many investors will find that publicly traded stocks can represent an opportunity to diversify. Entrepreneurs who find success with other investment strategies can use stocks as a way to grow their profit margins. If you are interested in a direct comparison of stocks vs real estate, be sure to read this article.

wealth building definition

Summary

The answer to “what is wealth building” is important for anyone looking to supplement their existing income. By creating a wealth building system, entrepreneurs can establish a successful investment portfolio and achieve financial freedom. Choosing the right wealth building assets comes down to which opportunities best suit your financial goals. With the right planning, aspiring investors can be well on their way to generating wealth through real estate and other assets.

Did our wealth earning guide help you determine which assets are right for you? Share your feedback in the comments:

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